Jose Miguel Porraz is negotiating an uneven Kuala Lumpur footpath as he talks up the benefits of emerging markets.
The Mexican-born boss of Fonterra Brands Malaysia admits that operating in the developing world comes with a distinct set of challenges.
"But it's exciting when you can grow a business at double-digit rates," he says."The dynamic here is really about building brands."
Porraz has become something of an emerging-markets specialist for the dairy co-operative.
Before taking up this post last year, he spent two years as managing director of Fonterra Brands in Vietnam. That followed a four-year stint in Santiago, where he was chief financial officer of Soprole, Fonterra's Chilean subsidiary.
Like Fonterra, emerging markets are going through a bumpy patch. Malaysia is no exception, thanks to a slump in the price of oil -- a major export earner for the country -- and a slowing Chinese economy.
But Porraz, who joined Fonterra in 2003 after writing a case study on the company as part of his Harvard MBA, is focused on the opportunities.
"From a demand point of view, last year was the highest ever for consumption of dairy in Malaysia," he says.
That said, Malaysians still only consume about 44kg of dairy products a year, about half the world average, says Porraz. "The prospects of growth that we see in Malaysia over the next 10 years are phenomenal."
Jose Miguel Porraz
We're pounding the pavements of western Kuala Lumpur, having a look at the convenience stores that are a key plank in the company's push to grow its already-strong branded presence in Malaysia, particularly in infant formula.
In a 99 Speedmart outlet, Porraz shows off a towering promotional stand for Fonterra's Anmum infant and maternal formula brand.
The company has its sights set on taking the number one spot in the Malaysian infant formula market -- a position now occupied by US-based Mead Johnson, whose brands include Enfagrow.
Anmum is the second-biggest baby formula brand in Malaysia, says Porraz.
He says the strategy for overtaking Mead Johnson includes promoting a growing-up formula (for children aged 3 and over) that, unlike other brands, has no added sugar.
We've begun communicating to mums that the longer you delay sugar into the diet of your children, the better.
Thanks to a rich diet and rising incomes, Malaysia can now claim the unfortunate title of being Asia's fattest nation. Forty five per cent of men and almost half its women are overweight or obese, according to a 2013 study by British medical journal the Lancet.
That compares with a global rate of about 30 per cent.
Porraz says the road to obesity often begins in childhood. "We've begun communicating to mums that the longer you delay sugar into the diet of your children, the better."
Fonterra, in its previous incarnation as the NZ Dairy Board, began operating in Malaysia in 1975.
Its Malaysian brands business launched in 1986 and now sells the equivalent of about two million litres of milk each day through a range of products which, in addition to infant formula, includes maternal formula, yoghurt and cheese.
Fonterra doesn't disclose financial figures for its Malaysian operation. But the company would have been responsible for much of the $586 million of milk powder, butter and cheese (59 per cent of total goods exports to Malaysia) that New Zealand sent to the country in the year to July.
Fonterra then adds value to raw ingredients at its two Malaysian manufacturing plants.
Many of the firm's brands -- such as Fernleaf, Anchor and Anlene -- are household names in Malaysia.
"We can say that in every category we participate in, we are either number one or number two," Porraz says. "In Anlene [calcium-enriched milk, to aid bone health] we are a strong number one."
Daniel Teng, operations manager of Malaysia's Jaya Grocer supermarket chain, says the many Malaysians who study in this country -- more than 1800 last year, according to Education NZ -- contribute to the popularity of New Zealand brands, as they often gravitate towards Kiwi products after returning home.
Fonterra's Tip Top is one of Jaya Grocery's top-selling icecream brands.
"Tip Top has been in the market for a long time and it has a strong market presence now," says Teng.
Fonterra's Kapiti icecream brand is also making inroads into the Malaysian market.
Instead of pouring a glass of milk, they'll say they are pouring a glass of Anchor.
The Business visited IDC (icecream, desserts and coffee) in the Damansara Kim district of Selangor, west of Kuala Lumpur.
The store, which opened last month, sells only Kapiti icecream and the New Zealand brand, which Fonterra acquired in 2005, features heavily in IDC's branding.
Co-founder CK Chee says he plans to open as many as five stores over the next two to three years.
Back in Fonterra's Kuala Lumpur headquarters, Porraz attributes the co-op's Malaysian success to the time it has invested in the market, combined with effective marketing campaigns. "I think first mover advantage definitely helped," he says.
New Zealand Trade and Enterprise's Malaysia trade commissioner, Matt Ritchie, says Fonterra's Malaysian brand recognition has reached the point where the word "Anchor" has become synonymous with milk.
"Instead of pouring a glass of milk, they'll say they are pouring a glass of Anchor," he says.
What's more, Anchor achieved its market position in predominantly Muslim Malaysia despite the existence of a popular beer brand with the same name.
In a way, the company's Malaysian brands operation is a shining example of what the co-operative can achieve in Asia.
Fonterra is now making a push to establish Anmum infant formula in the vast, complex and hyper-competitive Chinese baby milk market, which the co-op believes will almost double to $33 billion, by 2017.
It would be a huge boon for Fonterra Brands if Anmum could repeat its Malaysian success in China.
Porraz says establishing a brand like Anmum in a new market takes a lot of time and patience. "When you're entering a new market, particularly one that is as sensitive as infant nutrition, parents are very wary of change."
So does he reckon Anmum will crack China?
"I cannot speak for China but what we are very focused on doing is making sure that we are number one in Malaysia."
Despite its accomplishments, Fonterra Brands Malaysia is not immune to the upheaval resulting from the slump in dairy prices that is hitting its farmer shareholders.
On Monday, Fonterra announced that the number of job cuts across the business had risen to 750, from a previously announced figure of 523.
Yesterday, the company reported a $506 million after-tax profit, up 183 per cent on the previous year, despite a fall in revenue.
Porraz says there will also be job losses in the Malaysian business, which employs 680 staff. "We'll be leaner, but we'll be more efficient," he says.
At the time of the interview, the number of job losses in Malaysia had not been finalised. This week, a Fonterra spokesman said the company wasn't disclosing job cuts in individual markets, but the impact on Malaysia would be minimal.
Porraz says he understands the pressure Fonterra farmers are under while dairy prices remain low.
"Clearly there are only two things we can do to support them from a Malaysian perspective," he says. "The first is to be as lean as we can in our expenses so that we maximise cash, but more importantly grow our business as fast as we can because every litre of milk adds a massive amount to the farmers. That is really the best way that we can support them, through higher contribution to payout and dividend."
Porraz, however, doesn't think the criticism being levelled at Fonterra for its reliance on commodity exports is fair. He says Fonterra is "turning the wheel" as it directs growing volumes of milk into the brands business.
"Is it fast enough? No, we'd love to go faster. But I think the intent and the direction of Fonterra is absolutely sound."
Porraz says Fonterra's performance improvement programme, called Velocity, is already benefiting the Malaysian unit, including providing quicker access to capital for growth.
"We can say, 'We have a great idea here. We want to implement it. We need resources.' It then moves forward and we can start executing."
Malaysia is in a tight spot. It is sitting on the wrong side of the commodity downturn and is very reliant on credit.
There are, of course, forces outside the business which Fonterra can't control. Fears are growing that the oil price slump and the potential fallout from an eventual US interest rate hike could spark a financial crisis in Malaysia and other commodity-dependent Southeast Asian economies.
"Malaysia is in a tight spot," Fred Neumann, an HSBC economist, told the Financial Times this month. "It is sitting on the wrong side of the commodity downturn and is very reliant on credit."
But Porraz says he is not losing sleep over the economic outlook for Malaysia.
"Forget one or two years. If you look 10 years out -- that's when you have absolute certainty that the economy will continue to grow at 5 or 6 per cent. Household incomes will keep going up and people will continue to eat more out of home and be more exposed to dairy."
Christopher Adams travelled to Malaysia and Indonesia with assistance from the Asia New Zealand Foundation.
Indonesian opportunity
New Zealand companies need to pull together, to make the most of an airport building boom in Indonesia, says a Kiwi engineer.
Simon Longuet-Higgins, technical director of buildings in Indonesia for Auckland-based engineering firm Beca Group, says a huge opportunity exists in the push to improve the archipelago's ageing aviation infrastructure.
The Indonesian Government last year allocated 6.8 trillion rupiah ($735 million) for use this year to begin construction of several new airports and improvements to existing ones, the Jakarta Post reported.
But Longuet-Higgins, who has worked in Indonesia for 30 years, says addressing the opportunity requires a collaborative effort involving New Zealand engineering, construction, baggage handling, and training companies.
"It needs the industry in New Zealand to get itself together and put some money in a pot," he says. "If New Zealand Inc decides that it's going to do something, then we will support that. But we're not going to be out there doing all the marketing because at the end of the day we'd only get a small part in anything."
Beca has been operating in Indonesia since the early 1970s and employs about 100 people there. A recent project for the firm was the 750,000sq m Ciputra World development in Jakarta.
There has already been collaboration among New Zealand companies, including Beca and construction firm Hawkins, in Indonesia's geothermal industry.
Sir Ken Stevens, chairman of Kiwi baggage and cargo handling technology manufacturer Glidepath Group, agrees such collaboration would make sense.
But his firm is already "seriously busy" in Southeast Asia's biggest economy, with two projects under way in Surabaya and South Sulawesi and a further eight to 10 potential deals on the cards.
Stevens says it is a matter of finding the time for companies to meet and "put a plan together".
"There's a lot of business around at the moment in airports," he says. "Most of the exporting groups are fairly busy right now."
However, Stevens says the Indonesian rupiah's recent slump - partly the result of a downturn in commodity prices - is putting cost pressures on airport development projects.
"It's back to the drawing board in a number of cases," he says.
